The oil reserve - for whom?

May 25, 1983

As American motorists contemplate the summer of 1983 the oil and gasoline supply picture appears remarkably uneventful - at least compared to those summer days back in the early and mid-1970s, when stocks were interrupted by Mideast political upheavals and motorists found themselves waiting in long lines. Today there are ample supplies.

All of this comes to mind because of a little-noticed policy at the Department of Energy that recently went into effect regarding the Strategic Petroleum Reserve. The reserve was created by Congress to enable the United States to avoid the fuel disruptions of the 1970s. But what most Americans may not realize is that the new policy - put into effect only late last year - may well significantly alter the concept of the strategic reserve.

The new policy is called Plan Amendment Number 4. Under the new policy, in case the Department of Energy has to draw on the reserve, the great bulk of the crude that is taken out - 90 percent, in fact - would be subject to competitive bidding in the open marketplace. Only 10 percent would be subject to allocation. In short, the plan is based on the premise that the marketplace would work to ensure that the crude oil would reach those consumers (such as utilities, business firms, etc.) most needing the energy supplies.

The new plan replaces an earlier arrangement dating back to the Carter administration that was based on allocation. Yet Energy officials now argue that holding 10 percent for allocation is sufficient to ensure that cash-poor users - hospitals, farmers, smaller utilities, etc. - would be enabled to receive adequate supplies.

But would they? A number of lawmakers are concerned about the lack of fairness in Energy's new policy. But because there was little public attention given to the changes the plan was put into effect.

Congress would be on solid ground in making a careful probe into the new distribution program. What is to prevent cash-rich users - major oil companies, for example - from buying up the lion's share of the reserves in any real supply crunch? Under such an arrangement, is not the reserve then turned into a storage program for well-heeled energy users, with the American public paying the carrying charges? Those charges, incidentally, are hardly inconsequential. Construction costs for new storage facilities (such as salt domes) run around $5 per barrel. To maintain those facilities costs taxpayers another 15 cents per barrel per year.

The Strategic Oil Reserve was instituted to ensure that in the event of another oil crisis supplies would flow to where they were most needed. Not just to the highest bidder with the largest bank account. Congress should give more than just cursory attention to such a crucial policy change, as it failed to do last December when the new distribution formula was announced.